Macroeconomics: Economic performance Flashcards

Question

What is an economic depression?

Answer 1

More severe and prolonged economic downturn. Lasts longer and can persist for several years. Unemployment rates can reach very high levels and remain elevated for an extended period. Including severe banking and financial crises, with widespread bank failures, credit contractions, and disruptions to the financial systems.

Answer 2

Medium-long term damage done to the economies of one or more countries following a severe economic shock which then leads to a recession.

Answer 3

A fall in investment leading to an ageing of the existing capital stock. Rise in long-term unemployment and economic inactivity. Increase in business failures. Shrinkage in the capacity of financial system to lend.

Answer 4

Cuts in interest rates One of more types of fiscal stimulus A rebound in business and consumer confidence

Answer 5

Economic disturbances that can impact an economy's equilibrium.

Answer 6

Financial crisis which reduces consumer and business confidence leading to a sharp decline in spending, causing a demand-side shock.

Answer 7

A sudden, unexpected rise in commodity prices. Rapid increases or decreases in the prices of essential commodities (like oil) can affect production costs and AS.

Answer 8

Someone must be of working age, willing and able to work, and actively seeking work but cannot find a job.

Answer 9

Labour force survey: asks 60-70,000 UK households to self-classify as being employed, unemployed, or economically inactive. Claimant count: counts the total number of recipients of job seeker's Allowance (JSA) added to those looking for work to claim universal credit.

Answer 10

People who have been unemployed for 12 months or more. Structural supply-side problem in the UK labour market.

Answer 11

When officially one person in ten in the labour force is out of work.

Answer 12

Measured unemployment rate for all 16-24 year olds.

Answer 13

People who have ceased to seek work because they believe there are no suitable available jobs.

Answer 14

The number of people who do not have work but who are not counted in government reports.

Answer 15

Work arrangement where people perform short-term flexible, and often freelance work, typically through online platforms/apps. Often work on a project-by-project basis, sometimes for multiple clients at once. e.g. rideshare drivers, freelance writers, virtual assistants and food delivery workers.

Answer 16

Seasonal workers might be without paid jobs due to the time of year when there are seasonal changes in demand, production, and employment.

Answer 17

Caused by workers seeking a better job or who are between jobs. Affects people who are new entrants to the labour market e.g. school leavers and college/university graduates.

Answer 18

Making information on jobs more available and making job search more affordable via cheaper transport or subsidies.

Answer 19

Caused by lack of suitable skills for jobs available; a result of de-industrialisation (decline in manufacturing). Stay unemployed due to disincentive effects from the tax and welfare system. Can happen because of other barriers to people finding work e.g. unaffordable housing, high cost of childcare, and expensive transport services.

Answer 20

Involuntary unemployment due to a lack of AD for goods and services. Caused by the ups and downs of the business cycle.

Answer 21

Idea that unemployment is caused by wages being too high relative to the productivity of workers.

Answer 22

Wage rigidity happens when workers are reluctant to see their real wages fall during an economic downturn. Real wages drop when nominal wages don't rise as fast as prices. Keynesian argues that wages can be "sticky"/slow to adjust downward because of the long-term labour contracts, trade union collective bargaining agreements, and social norms about fair pay.

Answer 23

When individuals choose not to work for various reasons, even though suitable job opportunities are available to them.

Answer 24

People of working age but not in work who have not been looking for a job within the last 4 weeks.

Answer 25

Waste of scarce labour resources. Leads to lost output, slower growth, and potentially a reduction in a country's potential trend rate of growth (due to economic scarring) There are large fiscal costs for the government with higher welfare spending and reduced tax revenues. High long-term unemployment ca worsen income inequality. Labour market failure

Answer 26

Workers are under-utilised in terms of their ability, formal qualifications, and experiences. Occurs when people are counted as: Looking for an extra job or actively searching for a new job with longer hours to replace their current job. They prefer to work longer hours in their present job.

Answer 27

Fiscal stimulus: increasing public spending/cutting taxes to increase AD, which can stimulate economic growth and increase employment. Monetary policy: lowering interest rates which can encourage businesses and consumers to spend and invest more, boasting AD and employment. Depreciating currency: Imports become more expensive for domestic consumers, leading to more demand for domestic services. Cutting the cost of employing extra workers: reduction in the rate of national insurance contributions, financial support for apprenticeships/other job schemes, extra funding for regional policy.

Answer 28

Tax cuts: increased profits and investment for businesses leading to more hiring and increased productivity. Deregulation: removing unnecessary regulations can reduce costs for businesses and encourage innovation and investment which creates new jobs. Labour market reforms: making it easier to hire and fire workers can improve labour market flexibility and reduce structural unemployment. Education and training: Investment in it can improve the skills of the workforce, increase their productivity, and improve occupational mobility.

Answer 29

Economic cycles: create fluctuations in the level of unemployment. Structural unemployment: arises from a mismatch between the skills and qualifications of job seekers and the requirements of available jobs. Geographic disparities: in some areas of the UK, there may be higher levels of long-term unemployment due to the lack of job opportunities/industries in decline. Automation and technological advancements Underemployment: achieving full employment does not necessarily mean that everyone is in high-quality, full-time work.

Answer 30

A sustained rise in an economy's general price level meaning that on average, the prices of goods and services increases over time.

Answer 31

People's money is worth less in real terms meaning they must spend more to get the same goods and services.

Answer 32

A phase of extremely rapid inflation nearly always the result of mass money printing by the government with money as an asset ending up as worthless. It is also associated with economies where there has been a collapse in real output/supply.

Answer 33

A sustained period when the general price level for goods and services is falling means that a weighted basket of goods and services becomes less expensive over time. The annual rate of inflation is negative.

Answer 34

A fall in the rate of inflation but not sufficient to bring about price deflation. During periods of disinflation, consumer prices are still rising but at a slower rate e.g. a drop in the annual rate from 7% to 2%.

Answer 35

What people and businesses expect to happen to consumer prices in the future (usually one year ahead). Once a high rate of inflation becomes established it can be difficult to remove. If people expect higher prices, this can feed through to higher wage claims and rising costs. This is known as wage-price spiral.

Answer 36

An unfortunate and costly combination of slow economic growth, rising unemployment, and high rising inflation.

Answer 37

A measure that tracks changes in the average price level of a basket of goods and services purchased by a typical household over time. Widely used economic indicator for assessing inflation and cost of living adjustments.

Answer 38

Comparing prices of the items in the basket to the prices of the same items in a base year or period. The % change in this comparison reflects the inflation or deflation rate.

Answer 39

Not fully representative of all consumers- it will be inaccurate for non-typical households- 10% of CPI index covers motoring costs- inapplicable for non-car owners. Single people will spend differently from those with children. Errors/inaccuracies in data such as sampling errors from surveys. Many of the services in the digital economy do not have a price such as Google searches. Changing quality of goods and services: a rise in the quantity of products may not be easily reflected in the prices we pay. Time lags- CPI is slow to respond to new products in markets- the CPI basket is changed each year but only by a little.

Answer 40

When businesses respond to rising unit costs by increasing prices to protect their profit margins. This form of inflation can come about from both domestic and external sources including a fall in the external value of change rate.

Answer 41

A phase of accelerating inflation that arises from rapid growth in AD. It occurs when economic growth is too fast. Businesses can take advantage of high demand by raising their prices to widen (increase) profit margins. Typically associated with an economic boom.

Answer 42

Erodes the value of money. Can cause problems for consumers, who find their money doesn't go as far as it used to. Also affects businesses, because it can lead to uncertainty and instability e.g. businesses may have a harder time planning for the future and making long-term investments when inflation is high. When inflation is high, central banks will often raise interest rates in an attempt to curb inflation.

Answer 43

Increases in the money supply as the prime cause of inflation (too much money chasing into few goods) Milton Friedman proposed this.

Answer 44

MV=PQ shows that inflation is caused by a persistent increase in the supply of money.

Answer 45

M= money supply V= velocity of money P= price level Q= quantity of goods and services produced

Answer 46

The price level in an economy is directly related to the money supply and velocity of money (how quickly money circulates in the economy) relative to the quantity of goods and services produced. The amount of money in an economy times how often that money is spent determines the overall price level in the economy so, the more money there is in an economy, the more likely prices will rise because if there's more money in the system people can spend more leading to increased demand for goods and services. As demand increases, the prices for those goods and services rise as well.

Answer 47

Pandemic-related supply shortages: as the economy recovered from the pandemic, demand for these supplies and materials increased, but the supply couldn't keep up. This led to higher prices for raw materials and products, which pushed up inflation. Conflict in Ukraine: caused a spike in energy prices, as Russia is a major exporter of natural gas and other fuels. Higher energy prices have pushed up the cost of production for many businesses. Labour shortages: A lack of workers has made it difficult for businesses to operate, and it's pushed up wages for those workers who are available.

Answer 48

Practice of charging excessive or unreasonable prices for goods or services in response to a situation of increased demand or limited supply, such as during a natural disaster, pandemic, or other emergency.

Answer 49

The practice of companies reducing the size or quantity of a product, while keeping the price the same or even raising it. This allows companies to keep prices stable or even increase them, without consumers noticing as much. Companies may shrink the size of products, reduce the amount of product in a container, or even reduce the quality of the product. "Hidden inflation"

Answer 50

When a country experiences high inflation, investors may start to worry about the stability of the economy. They may fear that the high inflation will lead to a decline in the value of the country's currency. To protect their assets, these investors may decide to move their money out of the country, in a process known as "capital flight". They might do this by selling their assets in the country, like stocks or real estate, and then moving the proceeds to a different country, like one with a more stable currency.

Answer 51

It can affect its competitiveness in international trade. If one country has high inflation, while another country has low inflation, that can lead to an imbalance in trade. The country with high inflation will see its exports decline, while the country with low inflation will see its exports increase. This can lead to imbalances in the balance of trade, and it can also cause problems for the country with high inflation since it will become less competitive in the global marketplace. In extreme cases, this can lead to problems like capital flight and debt crises.

Answer 52

When a government issues new bonds, it has to offer a certain interest rate, known as the "yield", to attract investors. If inflation is high, the government will have to offer a higher yield on its bonds to entice investors to lend it money. This is because investors will want to be compensated for the risk of inflation eroding the value of their investment. In other words, they'll want to earn enough interest to offset the effects of inflation. High inflation leads to higher interest rates on government bonds. When governments must pay higher interest rates on their bonds, they ultimately increase taxes to pay off the interest.

Answer 53

Inequality: Inflation has a regressive effect on lower-income families in developed & developing countries – most of their wealth is held in cash. Falling real incomes – if wage rises lag price increases each year. Negative real interest rates: If the interest rate on savings is lower than inflation. Cost of borrowing: High inflation may also lead to higher interest rates for businesses and consumers with debts (perhaps via rising mortgage rates). International competitiveness: A high relative rate of inflation can reduce competitiveness which will lower demand for the country’s exports. Business uncertainty: High and volatile inflation is not good for confidence because businesses cannot be sure of what costs will be – this might hold back investment.

Answer 54

Winners: Workers with strong wage bargaining power (perhaps those workers who belong to trade unions), debtors- if real interest rates on loans become negative (when the nominal interest rate is less than inflation), producers- if their prices continue to rise faster than costs (leading to higher profits). Losers: retired people relying on fixed incomes/pensions, lenders- if real interest rates on loans are negative, savers- if real returns on their saving deposits are negative, workers in low-paid jobs with little or no bargaining power- perhaps those with no union representation.

Answer 55

Higher inflation can lead to fiscal drag – this happens when people’s wages/ incomes are rising in nominal terms which causes them to pay more in direct and indirect taxation. High inflation can cause a reduction in the real value of the government’s existing / outstanding debt. The real interest rate on borrowing money might be negative if the nominal yield (on a government bond) is less than the rate of inflation. Moderate positive inflation helps businesses to make higher profits – this generates more tax revenues for the government via corporation tax and increased VAT payments.

Answer 56

Pressure on the government to raise the value of state welfare benefits including the state pension or out of work benefits to help control poverty. High inflation can cause real GDP growth to slowdown – this can lead to lower tax revenues & the government then having to borrow more money. High inflation can lead to increased market interest rates making government borrowing more expensive when they issue new bonds. High relative inflation can lead to a worsening of international competitiveness causing a fall in exports which can then threaten jobs and GDP growth.

Answer 57

A wage-price spiral is a situation where workers bid for higher wages because they have seen their real income eroded by fast-rising prices. This can lead to a further burst of cost-push inflation in an economy.

Answer 58

Demand-pull inflation: Increases in interest rates and a tightening of the supply of credit. Contractionary fiscal policy – higher taxes and cuts in state spending. Cost-push inflation: Supply-side policies to increase productivity. Labour market reforms to increase labour supply.

Answer 59

Expansion of the worker-visa programme to encourage more skilled workers into the UK from the EU and beyond. Policies to encourage increased house-building to address chronic shortages and rent inflation. Investment in human capital to improve labour productivity and lower unit labour costs. Investment tax allowances to drive investment in and scale of renewable energy and gas storage. Infrastructure investment to help lower business costs in the long run (improved transport networks, telecoms).

Answer 60

Global Economic Factors: Fluctuations in global commodity prices, exchange rates, and international trade can affect the cost of imports and, consequently, domestic prices. Supply-Side Shocks: Supply-side factors, such as natural disasters, geopolitical conflicts, or supply chain disruptions, can lead to sudden and unexpected increases in production costs. Built-In Inflation: In countries with a history of high inflation, there may be built-in inflationary expectations. Workers may demand higher wages to keep up with expected price increases, and businesses may increase prices in anticipation of rising costs. This wage-price spiral can be self-reinforcing and challenging to break. Monetary Policy Lag: The impact of higher interest rates, may not be felt immediately. There can be a lag between the time a policy change is implemented and when it affects the economy. Household spending may be resistant to changes in interest rates.

Answer 61

Demand-side causes: deep fall in AD causing a recession, large negative output gap (high level of spare supply capacity). Supply-side causes: improved labour productivity, technological advances, significant fall in money wages, strong exchange rate causing import prices to fall.

Answer 62

Falling wages-businesses need to cut their costs to maintain profits so they may decide to reduce jobs. Real value of debt goes up- makes it harder to repay the debt. Consumers might hold back their spending- expecting price falls- lower C leads to fall in AD. Investment may slump and diversion overseas. Real interest rate on debt/savings will rise.

Answer 63

Fall in general prices- might increase the real incomes of poorer families (due to strong currency). Rise in demand for "value products"- business must offer value for money. Asset prices falling can improve housing affordability- important for first time buyers.

Answer 64

When the valuations of assets such as bonds, housing, and equities fall over a sustained period.

Answer 65

Holding back on spending- consumers may postpone demand if they expect prices to fall. Debts increase- real value of debt rises with deflation- can be a drag on consumer confidence. Real cost of borrowing increases- real interest rates will rise if nominal rates of interest do not fall in line with prices. Lower profit margins- lower prices can mean reduced revenues and profits for businesses- this can lead to higher unemployment as firms seek to reduce costs by shedding labour. Confidence and saving- falling asset prices such as price deflation in the housing market hits personal sector wealth and confidence. Income distribution- redistribution of income from debtors to creditors- but debtors may default on loans. Deflation can make exporters more competitive eventually- but this often comes at a cost such as high unemployment and weaker economic growth in the short-term.

Answer 66

Monetary policy-lower interest rates and quantitative easing- expanding the supply of credit in banking system. Fiscal stimulus measures- higher government spending (capital infrastructure projects), a rise in government borrowing to inject demand into the circular flow, lower direct taxes to increase disposable income and spending. Other measures to stimulate AD- attempts to lower the value of exchange rate e.g. central banks intervention to sell their own currency in the FOREX market. Higher taxes on savings to encourage consumption of goods and services.

Answer 67

Occurs when 2 policy objectives cannot both be achieved at the same time: the better the performance in achieving one objective, the worse the performance in achieving the other.

Answer 68

When the economy expands it is more likely that inflationary pressures will increase. Inflation is particularly likely to occur when growth is above the long-run trend rate and AD increases.

Answer 69

In a period of high growth- jobs are created, causing unemployment to fall. But, as unemployment falls, it can put upward pressure on wages, leading to inflation. It is possible to reduce both inflation and unemployment by using supply-side policies; you can reduce structural unemployment without causing wage inflation.

Answer 70

By taxing the rich more and transferring the tax revenues to the poor in the form of welfare benefits, UK governments have tried to reduce income inequalities. However free-market economists argue that such policies reduce entrepreneurialism and personal incentives, which makes the economy less competitive and the growth rate slower. In the free market view inequalities are necessary to promote the conditions for rapid and sustainable economic growth.

Answer 71

In the short term, the easiest way to increase living standards is to boost consumption. However this "live now, pay later" approach means sacrificing savings and investments, which in the long run may reduce economic growth.

Answer 72

Higher GDP leads to higher levels of pollution and consumption of non-renewable resources.

Answer 73

A gov may feel it needs to reduce the budget deficit. This will require higher taxes and lower spending. However, this tightening of fiscal policy will lead to a fall in AD and lead to lower economic growth. Ironically policies to reduce budget deficit can reduce tax revenues making the attempts to reduce deficit counter-productive. If spending cuts do lead to unemployment and lower economic growth, the government will need to pay more on benefits and will get lower tax receipts, therefore the deficit may experience only a small reduction. However, it depends on how you reduce the budget deficit e.g. if you raised the retirement age and made it more difficult to get welfare benefits, then you can reduce government spending but there is little negative impact on economic growth (in fact, people have to work longer, increasing LRAS). Though there may be side effects on issues of equality and fairness.

Answer 74

Shows the inverse non-linear relationship between the unemployment rate and the rate of inflation.

Answer 75

Assume inflation increases and unemployment falls when there is a growing positive output gap and the reverse with a growing negative output gap, the policy objectives between achieving these 2 policy objectives are greatest- the larger is the difference between the negative and positive output gap.

Answer 76

Shows the relationship between inflation and unemployment, considering the effects of expectations. If people expect inflation to be high, then inflation will be higher for a given unemployment rate in the labour market. E.g. if workers and firms expect inflation to increase in the future, they may negotiate higher wages and prices to compensate for the expected inflation. This would lead to an increase in actual; inflation, even if unemployment is low. (same thing for lower inflation) Therefore, the expectations-augmented Philips Curve implies that the relationship between inflation and unemployment is not solely determined by current levels of unemployment, but also by expected inflation. This means that changes in inflation expectations can shift the Philips curve and affect the trade-off between inflation and unemployment in the short-run.

Answer 77

Supply-side policies: aimed at improving the productive capacity of the economy e.g. investment in infrastructure, R&D, and education and training. These policies can increase the potential output of the economy, which can lead to a lower rate of structural unemployment and a flatter Philips curve. Labour market reforms- improve work incentives, boost inward migration of skilled workers, and improve labour mobility which can increase competition in the labour market which can help bring down unemployment without creating extra inflation. International trade- if increased overseas trade leads to greater contestability and lower prices for goods and services, this can lead to a lower inflation rate and a flatter Philips curve.

Answer 78

Macroeconomic tool used by a country's central bank to manage the money supply and interest rates to achieve specific economic objectives including price stability.

Answer 79

The central bank can set official monetary policy interest rates, which then affect the interest rates banks offer to borrowers and savers. Lowering interest rates can stimulate borrowing and spending while raising them can reduce borrowing and spending to control inflation.

Answer 80

Central banks buy/sell government securities in the open market to influence the money supply. Purchases inject money into the economy, while sales withdraw money.

Answer 81

The monetary authority and major regulator bank in a country. It is responsible for operating monetary policy and maintaining financial stability.

Answer 82

Bank of England (UK) European Central Bank (ECB) for all member nations of the Euro Area United States Federal Reserve (The Fed) Bank of Japan (BOJ)

Answer 83

Price stability- targeting a stable and moderate rate of inflation. Historically, the Fed has targeted an inflation rate of around 2% as being consistent with its price stability goal. Maximum sustainable employment- achieving the highest level of employment or minimising unemployment that the economy can sustain over the long term. The Fed seeks to foster conditions that promote job growth and reduce unemployment while maintaining price stability.

Answer 84

Price stability- maintain price stability (main goal of monetary policy) which is achieving an inflation rate of 2%. Supporting economic growth and employment- while the primary focus is controlling inflation, the BoE should consider the impact of its policies on the overall economic health of the country.

Answer 85

A lengthy period of stable prices and market confidence in the external value of currency.

Answer 86

The main interest rate set by a nation's central bank. This is the rate of interest charged to commercial banks if they must borrow from the central bank when short of liquidity. Market interest rates often take their cue from changes in the Base Interest Rate.

Answer 87

The nominal interest rate paid to covers, or the nominal rate of interest charged on a loan.

Answer 88

Nominal rate of interest adjusted for inflation. Can be negative if the nominal interest rate is lower than inflation.

Answer 89

Typically expressed as a % of the loan amount and are paid in addition to the principle, or the amount borrowed. Influenced by the general level of interest rates in the economy, the creditworthiness of the borrower, and the loan-to-value rate (LTV) of the mortgage.

Answer 90

Rate of growth of real GDP and the estimated size of the output gap. Forecasts for price inflation Rate of growth of wages and other business costs Movement in a country's exchange rate Rate of growth of asset prices such as house prices Movements in consumer and business confidence External factors such as global energy prices and inflation in other countries Financial market conditions including the rate of growth of credit/money.

Answer 91

Higher interest rates raise the cost of borrowing for businesses and consumers, which slows consumer spending and business investment. This reduces AD for goods and services, which in turn eases upward pressure on retail prices. Higher interest rates lead to an appreciation of the currency. This makes imports cheaper which then helps to reduce inflation. Higher interest rates increase the return on savings, which encourages saving and helps to reduce inflationary pressures from excess AD. Central banks might also think that an increase in the cost of borrowing sends a message to businesses and unions when negotiating pay settlements.

Answer 92

Cuts in interest rates or an increased supply of credit designed to increase AD.

Answer 93

When a nation's central bank charges commercial banks interest for holding funds with them. This policy would be designed to get commercial banks to lend out to people and businesses rather than hold money on account at the central bank. In a extreme form, savers might be charged interest on their savings.

Answer 94

An approach taken by a central bank to reduce the money supply or raise interest rates with the primary goal of decreasing AD and slowing down economic activity. The aim of this policy is to combat inflation and maintain price stability.

Answer 95

Consumer spending- makes it more expensive for households to service their debts, reducing effective disposable income. Household saving- return on saving usually rises leading to an increase in the MPS and a fall in consumer demand. Investment- makes borrowing more expensive for firms, which can reduce their investment in new capital. Exchange rates- leads to an appreciation of the domestic currency, making exports more expensive and imports cheaper which can lead to a decrease in AD as firms and consumers reduce spending on foreign goods. Asset prices- reduce value of assets such as stocks, bonds, and housing, leading to a decrease in AD as households reduce spending in response in lower wealth.

Answer 96

They increase the cost of borrowing, which can make it more expensive for businesses to invest in new equipment or expand their operations. They can lead to a decrease in consumer spending, as higher interest rates tend to reduce people's effective disposable income and make them less likely to spend on non-essential items. Can make it more expensive for businesses to refinance existing debt. They can increase the cost of working capital, which can put pressure on a business's cash flow and profitability. If higher rates lead to a currency appreciation, then exporters may find that they become less price competitive in overseas markets.

Answer 97

Can make borrowing more expensive. This can impact consumers looking to take out a loan/credit card, as well as those with existing variable-rate debts like mortgages or car loans. Can lead to lower levels of consumer spending, as consumers may focus on paying down their debts. Also leads to worsening consumer confidence especially if people fear that they might lead to a recession. Increase mortgage rates might cause a drop in average house prices. Can have an impact on the value of people's savings, as interest rates on savings accounts increase-good for savers.

Answer 98

It becomes more expensive for firms to borrow money for capital investment, causing a decrease in investment and hence a possible decrease in LRAS. A drop in investment means that an economy’s capital stock will age possibly leading to a fall in productivity/efficiency. Can reduce the profitability of businesses (borrowing costs are increased and consumer demand contracts). If profits decline, then businesses may have less to spend on research and development and innovation which might then lead to lower labour productivity.

Answer 99

Usually causes an appreciation of the exchange rate. This can allow domestic businesses to buy imported capital equipment/software and hardware at a lower price. This might cause capital spending to rise. Help control inflation. If this policy is successful, then lower inflation will help to improve macroeconomic stability and business confidence. This in turn can help promote investment demand. Can encourage households to save more money, which can increase the pool of funds available for lending to businesses, potentially making it easier and cheaper for them to access financing.

Answer 100

Stands for non-accelerating inflation rate of unemployment. It is the level of unemployment below which the inflation rate might be expected to accelerate significantly.

Answer 101

Relative wage bargaining power of workers and trade unions (using their collective bargaining power). Factors influencing structural unemployment in the labour market. Impact of globalisation on the pricing power of businesses- mainly the Philips Curve. Impact of flows of migrant workers into the UK- easing skilled labour shortages.

Answer 102

1970s stagflation- high unemployment and inflation. Economies "tend towards" their natural rate. Just a short-term explanation of policy impacts. Few workers can influence their wages. Factors other than wages influence the inflation rate, especially global factors.

Answer 103

Vertical line at the natural rate of unemployment i.e. it is assumed to be independent of the level of short-run demand/output and the general price level. No trade-off between inflation and unemployment in the long run.

Answer 104

Successful supply-side policies help to: Improve the occupational mobility of labour force Attract more people into the active search for work Reduce the problem of occupational mobility Lift labour productivity These policies can lead to a fall in the natural rate of unemployment (frictional and structural). This causes the LR Philips curve to shift to the left.

Answer 105

Gov priorities change: in 1970s-80s inflation was seen as the biggest problem; unemployment was higher than now. Objectives depend on a country's stage of development. Value judgment matter Some objectives are sub-sets of others e.g. export-led growth improves the trade balance. Are some of the objectives conflicting in the short run but not in the LR- e.g. tax-cutting policy designed to attract inward FDI. External shocks can help relieve conflicts or make them worse. Nothing in macroeconomics happens in isolation. Most countries are deeply interconnected. A gov may satisfice- i.e. be satisfied with reasonable outcomes for each objective and tolerate some trade-offs.

Answer 106

A fall in unemployment can lead to increased income tax (increased tax revenue). Increases standard of living. It depends on whether they hire workers or machines. Reduced poverty- Gov has more money so invest more in education, healthcare.

Answer 107

Inflation- demand pull and cost push. This impacts living standards (regressive impact on the poor) because consumers have less purchasing power so demand falls which is bad for firms because they can't export which worsens the balance of payments. However, it depends on how economic growth is achieved (AD shifting=inflationary but shifting AS isn't) Overexploitation of scarce natural resources. It depends on whether the growth is achieved sustainably, it depends on what the economy is specialising in (UK specialises in financial services). You don't have to exploit your resources. Income inequality (Gov takes money of the rich as tax and invests in NHS, education as income tax). Can be reduced by the gov- progressive tax on rich.

Answer 108

Occupational immobility as the pattern of LD changes e.g. workers facing challenges and costs of re-training such as people made redundant in heavy manufacturing/ who lose jobs because of automation/robotics/AI. Employment trap- incentive effects from the tax and welfare system. They may face a very effective marginal tax rate if they take a low-paid job.

Answer 109

Increasing deficit-funded government spending on infrastructure projects e.g. roads, bridges, hospitals, and schools. This not only creates immediate job opportunities in sectors such as construction but stimulates AD and can lead to a positive multiplier effect and possible accelerator effects on business investment.

Answer 110

Encourage flexible labour markets by minimising restrictions on hiring and firing practices. This can involve reforming labour laws to make it easier for employers to adjust their workforce based on market demands. A good example might be to encourage zero-hour contracts.

Answer 111

Education programmes e.g. apprenticeship schemes. Promotion of digital skills and other vocational programs. Reforms to further and higher education e.g. reducing tuition fees. Provide subsides to employers such as electricians and construction workers in order for them to provide more apprenticeships to young people.

Answer 112

Higher skilled- worker visa quotas. Tax incentives such as lower national insurance for construction companies taking on apprentices. Long run- tax incentives for investment in modern methods construction.

Answer 113

Tax relief on pension contributions for over-50s to deter early retirement. Policies to encourage flexible working. Financial support for caring. Financial support for re-skilling including digital programs.